Notice2022-00157
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change To Amend FINRA Rule 2231 (Customer Account Statements)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 10, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 6 (Monday, January 10, 2022)</title>
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[Federal Register Volume 87, Number 6 (Monday, January 10, 2022)]
[Notices]
[Pages 1201-1203]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-00157]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93897; File No. SR-FINRA-2021-024]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order
Instituting Proceedings To Determine Whether To Approve or Disapprove
the Proposed Rule Change To Amend FINRA Rule 2231 (Customer Account
Statements)
January 4, 2022.
I. Introduction
On September 29, 2021, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change SR-FINRA-2021-024 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') \1\ and Rule 19b-4 \2\ thereunder to amend FINRA Rule 2231
(Customer Account Statements) to add new supplementary materials,
incorporate specified provisions from dual FINRA-NYSE temporary rules,
and delete those temporary rules.\3\ The proposed rule change was
published for public comment in the Federal Register on September 30,
2021.\4\ On November 9, 2021, FINRA consented to an extension of the
time period in which the Commission must approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to approve or disapprove the proposed rule change
to January 4, 2022.\5\ On January 4, 2022, FINRA responded to the
comment letters received in response to the Notice and filed an
amendment to modify the proposed rule change (``Amendment No. 1'').\6\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Exchange Act Release No. 93215 (September 30, 2021), 86 FR
55641 (October 6, 2021) (File No. SR-FINRA-2021-024) (``Notice'').
\4\ See supra note 3.
\5\ See letter from Sarah Kwak, Associate General Counsel,
Office of General Counsel, FINRA, to Daniel Fisher, Branch Chief,
Office of Chief Counsel, Division of Trading and Markets,
Commission, dated November 9, 2021.
\6\ See letter from Sarak Kwak, Associate General Counsel,
Office of General Counsel, FINRA, to Vanessa Countryman, Secretary,
Commission, dated January 4, 2022 (``FINRA Response'').
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The Commission is publishing this order pursuant to Section
19(b)(2)(B) of the Exchange Act \7\ to solicit comments on the proposed
rule change, as modified by Amendment No. 1, from interested persons
and to institute proceedings to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 1.
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\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
FINRA is proposing to amend Rule 2231 (Customer Account Statements)
to add new supplementary materials, incorporate specified provisions
from dual FINRA-NYSE temporary rules, and delete those temporary rules.
The proposed rule change would amend Rule 2231 to add new supplementary
materials pertaining to compliance with FINRA Rule 4311 (Carrying
Agreements), the transmission of customer account statements to other
persons or entities, the use of electronic media to satisfy delivery
obligations, and compliance with FINRA Rule 3150 (Holding of Customer
Mail).
Specifically, proposed new Supplementary Material .01 to Rule 2231
would remind firms of their obligations under Rule 4311, including
specifically the rights and obligations of carrying firms under Rule
4311(c)(2) that generally require each carrying agreement in which
accounts are to be carried on a fully disclosed basis to expressly
allocate to the carrying firm the responsibility for the safeguarding
of funds and securities for the purposes of Exchange Act Rule 15c3-3
and for preparing and transmitting statements of account to customers.
Proposed new Supplementary Material .02 to Rule 2231 would prohibit
member firms from sending customer account statements to third parties
unless: (1) The customer provided written instructions to the
[[Page 1202]]
member to send statements to such third parties; and (2) the member
sends duplicate account statements directly to the customer either in
paper format or electronically. The proposed Supplementary Material .02
would add that a member firm may cease sending duplicate account
statements to a customer where a court of competent jurisdiction has
appointed a guardian, conservator, trustee, personal representative or
other person with legal authority to act on a customer's behalf, and
such court-appointed fiduciary provides written instructions to the
member and furnishes to the member an official copy of the court
appointment that establishes authority over the customer's accounts.
Proposed new Supplementary Material .03 to Rule 2231 would allow
member firms to satisfy their delivery obligations under the rule by
using electronic media, subject to compliance with standards
established by the Commission on the use of electronic media for
delivery purposes.
Proposed new Supplementary Material .04 to Rule 2231 would permit
member firms to hold customer mail, including customer account
statements or other communications relating to a customer's account,
subject to the requirements of Rule 3150.
Proposed new Supplementary Material .05 to Rule 2231 would
incorporate without substantive changes NYSE Rule Interpretation
409T(a)/02 by requiring the following information to be clearly and
prominently disclosed on the front of a customer account statement: (1)
The identity of the introducing and clearing firm, if different, and
their respective contact information for customer service (although the
proposed rule change would permit the identity of the clearing firm and
its contact information to appear on the back of the statement provided
such information is in ``bold'' or ``highlighted'' letters); (2) that
the clearing firm is a member of SIPC; and (3) the opening and closing
balances for the account.
Proposed new Supplementary Material .06 to Rule 2231 would
incorporate without substantive changes NYSE Rule Interpretation
409T(a)/04 which provides that where a customer account statement
includes assets the member firm does not carry on behalf of a customer
and are not included on the member's books and records, such assets
must be clearly and distinguishably separated on the account statement.
The proposed rule change would also require the account statement to:
(1) Clearly indicate that such externally held assets are included on
the statement solely as a courtesy to the customer; (2) disclose that
information (including valuation) for such externally held assets
included on the statement is derived from the customer or other
external source for which the member is not responsible; and (3)
identify that such externally held assets may not be covered by SIPC.
Proposed new Supplementary Material .07 to Rule 2231 would
incorporate without substantive changes NYSE Rule Interpretation
409T(a)/05, which provides that where the logo, trademark or other
identification of a person (other than the introducing firm or clearing
firm) appears on a customer account statement, then the identity of
such person and the relationship to the introducing, clearing, or other
firm included on the statement must be provided and may not be used in
a manner that is misleading or causes customer confusion.
Proposed new Supplementary Material .08 to Rule 2231 would
incorporate without substantive changes NYSE Rule Interpretation
409T(a)/06 by establishing a member firm's obligations where the member
holding a customer's account and another person who separately offers
financial related products or services to the same customer jointly
provide their respective customer account statements together with a
statement summarizing or combining assets held in different accounts.
Finally, FINRA is proposing to delete NYSE Rule 409T and NYSE Rule
Interpretation 409T in their entirety on the basis that the underlying
concepts in these provisions will have been included in Rule 2231, are
duplicative of other rules, or are outdated.
Amendment No. 1 would modify the proposed rule change by changing
the term ``clearing firm'' to ``carrying firm'' in the following
places: (1) Proposed Rule 2231(a); (2) proposed Rule 2231.05(a) and
(b); (3) proposed Rule 2231.07; and (4) proposed Rule 2231.08(d). FINRA
stated that changing the term ``clearing firm'' to ``carrying firm''
would maintain consistency given the proposed supplementary materials
are derived largely from their corresponding NYSE provisions, which use
the term ``carrying organization.'' \8\
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\8\ See FINRA Response.
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III. Proceedings To Determine Whether To Approve or Disapprove File No.
SR-FINRA-2021-024 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved.\9\ Institution of proceedings is appropriate at this time
in view of the legal and policy issues raised by the proposed rule
change. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to the proposed
rule change, as modified by Amendment No. 1.
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\9\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\10\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis and input concerning whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Exchange
Act and the rules thereunder.
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\10\ Id.
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IV. Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposed rule change, as modified by Amendment No. 1. In
particular, the Commission invites the written views of interested
persons concerning whether the proposed rule change, as modified by
Amendment No. 1, is consistent with the Exchange Act and the rules
thereunder.
Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\11\
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\11\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97
(1975), grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Report of the Senate Committee on Banking, Housing and Urban
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess.
30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by January 31, 2022.
Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by February 14, 2022.
Comments may be submitted by any of the following methods:
[[Page 1203]]
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c5b7b0a9a0e8a6aaa8a8a0abb1b685b6a0a6eba2aab3"><span class="__cf_email__" data-cfemail="295b5c454c044a4644444c475d5a695a4c4a074e465f">[email protected]</span></a>. Please include
File No. SR-FINRA-2021-024 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File No. SR-FINRA-2021-024. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of FINRA.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
All submissions should refer to File No. SR-FINRA-2021-024 and
should be submitted on or before January 31, 2022. If comments are
received, any rebuttal comments should be submitted on or before
February 14, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00157 Filed 1-7-22; 8:45 am]
BILLING CODE 8011-01-P
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